A simple explanation on the concept of Reverse Mortgaging for easy understanding by those not familiar with it too

1. Reverse Mortgaging
by
Dr. Malathi Selvakkumar

3. Reverse Mortgaging (RM)
• Since the pandemic, the financial welfare and
wellbeing of senior citizens have been in
question
• RM is designed specially for those who have
invested their life savings in real estate, and is
a solution to old age penury

4. RM
• Left with meagre pension that does not match
the spiralling inflation and living expenses,
more senior citizens opt for this
• The decision to monetise the asset they have
(a home) which is self-acquired property,
without legal heir issues

5. The Working of RM
• The senior citizen will first seek the help of a
financial planner to liquidate their home while
still living in it
• After RM, he/she will receive a fixed amount
every month throughout his/her life

6. The Working of RM
• This sum will be recovered in total by selling
the property after the death of the mortgager
• This scheme was launched in 2007 by many
Indian banks and financial institutions, with
the intention to instil financial confidence in
the minds of senior citizens

7. The Working of RM
• The senior citizen and the banks/financial
institution enter into an agreement to
liquidate the property after his/her death in
exchange for a lump sum amount or monthly
payments
• The senior citizen has to pledge
the rights of his/her house to
the mortgagee in return for the
periodic/ lump sum payment

8. The Working of RM
• Under RM, there is no repayment and senior
citizens do not carry the stress of monthly
payments towards their loan or the liability of
the loan
• It is gradually becoming a norm in urban area

9. General observations
• An average Indian normally gives importance
to investment in residential units over other
asset classes
• According to a report by RBI on household
finances, 77% of household wealth in the
country is invested in real estate

10. General observations
• The Indians are Asset Rich but Cash Poor on
retirement
• So RM is targeting those senior citizens who
lack liquid assets but own residential property
• It helps retirees to monetise their homes
without actually selling them

11. General observations
• RM is slow in growth because of the
emotional attachment to property, besides
the habit of passing it down to the younger
generations
• The estimated market size for RM is 20,000
crores, but only up to 2,000 crores has been
sanctioned

12. Challenges faced by RM
• Less understanding and awareness
• Tedious process
• Expenses in valuation
• Legal hurdles
• Objection from potential
legal heirs
• Poor social spread

13. Eligibility Norms
• Borrower should be at least 60 years of age
• One of the spouses can be aged at 55 years if
the house is on joint ownership
• Financial institutions/ banks assess the
ownership and occupancy status of the
property

14. Eligibility Norms
• It should be the primary permanent residence
of the borrower
• To verify this, lenders ask for correspondence
address of utility bills and bank statements

15. Eligibility Norms
• Most important - the residual life of the
property should be at least 20 years and free
of encumbrance
• Borrowers must have a clear title indicating
ownership of the property

16. Market Expectations
• Digitalization of land title
• Better valuation process
• Amount of loan as a % of the
market value of the property may
raise
• Hence possibility for higher
monthly payments
• Greater potential to pull high value customer
seeking higher income towards RM